Good News For Housing, Finally

No, I'm not referring to this morning's upbeat housing starts report. The 2.8% rise in housing starts to a seasonally adjusted 591,000 annual rate is a positive leading indicator for the media that is looking for good headlines. But really, what difference does builder confidence really make when we have too many existing homes lying vacant and pending foreclosures looming on the horizon? Certainly the builders have misjudged demand before. The only reason they are still around is due to the nice tax refunds they received courtesy of the last round of legislation aimed at stimulating housing demand. The real question remains how we are going to solve the fundamental problem of too many homeowners buried underneath the financial burden of their upside-down mortgages. Fortunately, I think we finally have a promising answer.

The FT reports that the administration, and more importantly banks, are starting to warm up to the idea of facilitating short-sales between buyers and sellers of distressed properties. Since it is becoming painfully obvious that mortgage modifications don't really work en masse, and foreclosures are far too expensive for banks, the idea of speeding up the process of short-sales is taking hold. This is the best news I've heard for the housing market in some time and the most promising solution to our continuing housing woes. Why? Because the financial incentives for all the parties are finally aligned. Short-sales keep distressed assets from winding up on the banks balance sheets and are cheaper than foreclosures. Yes, the bank has to take a hit, but it is the cheapest option. The original home-owner gets paid to relocate and is released from the burden of owning an asset that is worth far less than what he paid for it. He can move on and maybe buy another place in a few years. The buyer gets a good deal and no longer has to go through the often lengthy and frustrating process of buying a short sale. The house is less likely to get trashed by an angry former owner. The otherwise inevitable expensive and painful foreclosure step is removed from the equation, making the transaction easier and cheaper for everyone. See? Win-win for everyone.